Voluntary Submission

1. Name of the case

United States – Taxes on Petroleum and Certain Imported Substances, Panel Report,
L/6175, adopted 17 June 1987, BISD 34S/136
2. Facts
The US Superfund Act imposed a tax of 8.2 cents per barrel for domestic crude oil
and a tax of 11.7 cents per barrel for petroleum products imported to the US.
A panel was established to examine Canada’s, Mexico’s and ECC’s complaints
concerning the taxes imposed by Superfund Act on domestic and imported products under
Article III:2 of GATT.
The US admitted that the tax did violate the national treatment of Article III:2.
However, it argued that the tax differential was too small that it did not have a lot, if any,
effects on trade. Canada, the ECC and Mexico did not recognize the legal validity or
factual correctness of this defence.
3. Issue
Whether the presumption that a measure inconsistent with GATT could nullify or
impair benefits accruing under GATT could be rebutted or not. And if the presumption is
rebuttable, whether a demonstration that the measure inconsistent with Article III:2 has
no or insignificant trade effects is a sufficient rebuttal.
4. Rule
GATT Article XXIII: Nullification or Impairment:
1. If any contracting party should consider that any benefit accruing to it
directly or indirectly under this Agreement is being nullified or impaired…
the contracting party may, with a view to the satisfactory adjustment of the
matter, make written representations or proposals to the other contracting
party or parties which it considers to be concerned…”
GATT Article III:2: “The products of the territory of any contracting party imported
into the territory of any other contracting party shall not be subject, directly or indirectly,
to internal taxes or other internal charges of any kind in excess of those applied, directly
or indirectly, to like domestic products. Moreover, no contracting party shall otherwise
apply internal taxes or other internal charges to imported or domestic products in a
manner contrary to the principles set forth in paragraph 1.”
 Annex to the 1979 Understanding on dispute settlement: “where there is an
infringement of the obligation assumed under the General Agreement, the action is
considered prima facie to constitute a case of nullification or impairment.”
5. Application
After examining the reactions of the CONTRACTING PARTIES in cases related to a
measure inconsistent with the General Agreement but had no or small effects, therefore
did not cause nullification or impairment to the contracting party with complaints, the
Panel found out that there was no cases where a rebuttal has been successfully made. The
Panel therefore, according to the result of previous cases, decided the presumption that a
measure inconsistent with Article III:2 causes nullification and impairment is irrefutable.
The first sentence of Article III:2 need to be interpreted as to protect the expectations
on the competitive relationship between imported and domestic products. It also does not
refer to any trade effect. Therefore, the amount of tax difference should not be taken into
account when examining the nullification and impairment of benefits accruing under the
this article.
6. Conclusion
The Panel concluded that the presumption measures inconsistent with the General
Agreement could nullify or impair benefits accruing under this Agreement is an absolute
presumption, or in other words, it could not be rebutted. And even if it is rebuttable in
principle, the demonstration that there is no or only insignificant effects caused by the
inconsistent with Article III:2 would not serve as a sufficient demonstration that the
benefits accruing under that article has not been nullified or impaired.